Gearbox DAO

Purpose

This proposal authorizes a trial effort to migrate a portion of GEAR liquidity from Curve to CoW AMM. The trial aims to evaluate the effectiveness and long-term benefits of CoW AMM for the Gearbox ecosystem, particularly its potential to generate additional revenue for liquidity providers through its innovative design.

Execution

The following steps would be executed:

1. Deploy a GEAR/WETH pool on CoW AMM with a target TVL of $500k.
2. Fund 2M GEAR as liquidity incentives on CoW AMM.
3. Added incentives from CoW DAO and Balancer, targeting 10% APY up to $500k in TVL.
4. Run the trial for a 2-month period.
5. Conduct evaluation at the end of the trial period. A dedicated Dune dashboard will be provided to track the GEAR/WETH CoW AMM pool performance.

Details

• Pool: GEAR/WETH on CoW AMM
• Target TVL: $500k
• Incentive Rate: Targeting 10% APY in BAL and additional GEAR incentives
• Incentive Source: GEAR and BAL
• Trial Duration: 2 months
• Evaluation Metrics:
  • Actual liquidity migration
  • Trading volume
  • Performance
  • User adoption
  • Any additional benefits observed

Marketing Collaboration

1. Gearbox to promote the new CoW AMM pool to its community through:
   • Social media announcements (Twitter, Discord, Telegram, etc.)
   • Community calls or AMAs about CoW AMM
   • Inclusion in newsletters or other regular community updates
2. CoW AMM to provide marketing support:
   • Feature Gearbox in ongoing marketing campaigns
   • Collaborative content creation
   • Cross-promotion opportunities

Reasoning and Long-Term Benefits

1. Innovative AMM Design: CoW AMM is a “Function-Maximizing” AMM (FM-AMM) that addresses key shortcomings of traditional Constant Function AMMs (CF-AMMs). This innovative design offers several long-term benefits:

   a. Elimination of LVR (Loss vs. Rebalancing): Traditional AMMs suffer from LVR, where liquidity providers lose value compared to simply holding the underlying assets. CoW AMM’s design eliminates this issue, potentially leading to higher returns for LPs over time. Learn more about LVR

   b. Optimal Price Execution: CoW AMM batches trades and executes them at a uniform clearing price, ensuring that trades always occur at the correct, equilibrium price. This can lead to better trading conditions and potentially higher volumes.

   c. Competitive Solver Mechanism: Solvers compete to provide the best trades against the AMM, which can result in more efficient price discovery and potentially higher returns for LPs.

2. Suitability for Volatile Pairs: CoW AMM pools are particularly effective for volatile token pairs like GEAR/WETH, where the benefits of eliminating LVR can be most significant.

3. Additional Revenue Source: By mitigating LVR, CoW AMM effectively provides an additional source of revenue to LPs that is not available in traditional AMMs. This could result in higher long-term yields for GEAR token holders providing liquidity.

4. Ecosystem Integration: CoW DAO has partnered with Balancer to implement CoW AMMs into the Balancer ecosystem, providing a familiar and user-friendly interface for liquidity providers.

5. Future-Proofing: As the DeFi landscape evolves, exploring innovative AMM designs positions Gearbox at the forefront of technological advancements in the space.

Post-Trial Evaluation

After the 2-month trial period, a comprehensive evaluation will be conducted to assess:

1. The actual amount of liquidity migrated from Curve to CoW AMM
2. The impact on trading volume and conditions for GEAR
3. Fees generated and their distribution
4. User feedback and adoption rates
5. Any unforeseen benefits or challenges encountered

Based on this evaluation, a follow-up proposal will be submitted to the Gearbox DAO to decide on:

1. Continuing the partnership with CoW AMM
2. Potentially increasing the liquidity migration
3. Adjusting incentive structures if necessary
4. Or reverting to the previous liquidity distribution if the trial is deemed unsuccessful

Conclusion

This proposal presents an opportunity for Gearbox to explore the potential long-term benefits of CoW AMM. By starting with a small-scale experiment, we can gather valuable data to inform future decisions about liquidity management and partnerships. The innovative design of CoW AMM offers the potential for increased LP returns through LVR elimination, making this trial an important step in optimizing Gearbox’s liquidity strategy.

We encourage all DAO members to carefully consider this proposal and participate in the voting process.